Bankruptcy

What follows are some general questions and answers about bankruptcy law in Florida. If you’d like more information, or you don’t see an answer to the question you want answered, check out our Blog, which is updated every couple of days, and is a searchable guide to many interesting questions about debt consolidation, erasing debts, foreclosure, and other areas of bankruptcy law.

Also, if you don’t find your answer here or in the blog, you can contact us for free. You can submit a case or a question through our form, or you can call us for a free consultation or teleconference. Heck, we’ll even Skype, if you like!

Did the bankruptcy laws change?

Yes. On April 17, 2005, former President George W. Bush signed the Consumer Protection Act into law, changing bankruptcy laws drastically. The law does a lot of things to change bankruptcy, but one thing it does not do is protect consumers. The new law severely hurt the ability of some consumers to file bankruptcy and will greatly helped credit card companies collect on the debts owed to them. However, most people can still file bankruptcy with a very minimal amount of difficulty, and it’s a much simpler process than most people realize.

Why do we allow people to file bankruptcy?

Bankruptcy is actually good for the economy. Often, people become burdened with debt through no fault of their own, usually because of divorce, job loss, or uncovered medical expenses (even though the person has health insurance). If we didn’t allow people to have their debts erased, they would become unproductive. Who would work knowing that all their money is just going to be taken away from them? No one would start a new business or job knowing that they could never profit from it or keep their earnings. Bankruptcy allows people to start again, to begin their financial lives once more with a clean slate.

What types of bankruptcy are available?

Chapter 7 bankruptcy is the most common. Chapter 7 has the possibility of allowing an individual or couples to erase all debts and keep all property, though there is a complicated set of federal and state laws governing what debts may be erased and what property may be kept. Chapter 7 is most often used by people who have a significant amount of unsecured debt and not many assets. Chapter 13 allows an individual or couple to set up a payment plan to pay off creditors, usually over the course of three to five years. The payoff is often at a reduced rate. Chapter 13 is most often used by people wanting to save their homes after falling behind on a mortgage, or by people who owe the IRS. There are other chapters of bankruptcy, but these are most often used by corporations, farmers, or municipalities.

Can bankruptcy erase all my debt?

Probably, at least if you file a Chapter 7. Some kinds of debt are not dischargeable (eraseable), for instance debt owed to the IRS, child support and alimony, student loans, or debt incurred as a result of commiting a crime. We can probably tell you which of your debts is dischargeable at our initial meeting.

Will I lose my poperty if I file bankruptcy?

Probably not. The amount and type of property you can keep depends on which state you live in. Rarely do people who file for bankruptcy have so much property that they must surrender it, but this is something we can predict for you at the initial consultation.

Can I stop a car repossession or house foreclosure with bankruptcy?

Probably, as long as the house or car hasn’t already been sold to someone else.

Will I be able to keep my car and house if I file bankruptcy, and do I still have to make the payments?

You can almost always keep any secured property (property you are still making payments on) if you continue to make payments on time before, during, and after your bankruptcy. This rule applies particularly to houses and cars, which have extra protection by bankruptcy law. Of course, many people have houses that are “under water,” and they choose to discharge (“erase”) the mortgage(s) on their homes through bankruptcy and let the house go.

I have a lot of equity in my house and I have a retirement account. Will I lose either if I file Chapter 7?

Probably not. Though the laws differ from state to state, almost every state has laws protecting your home and retirement against bankruptcy, regardless of the property’s value. Florida is particularly favorable for those who want to keep their homes, retirements, pensions, public assistance, life insurance proceeds, disability, and many benefits.

If I file bankruptcy, will the people I owe stop calling me?

By law, creditors (people you owe money to) must stop collection efforts (like phone calls and letters) when they learn you have filed bankruptcy. There are serious penalties for creditors who willingly violate this law. All lawsuits, wage garnishments, foreclosure lawsuits, etc., are also stopped on the day you file bankruptcy. You may also be able to stop your creditors from harassing you on the day you hire a lawyer to file your bankruptcy for you, even if you haven’t filed bankruptcy yet and may not file for many months.

Will bankruptcy affect my credit?

Yes. A bankruptcy will usually remain on your credit and affect your credit score for ten years. The interesting thing is how it affects your score. Just exactly how credit scores (called FICOs technically, but you may hear the term Beacon or some other term) are determined is something of a mystery, since the company that provides scores (Fair, Isaac & Co. — that’s where the term “FICO” comes from) to the three major credit reporting agencies doesn’t disclose exactly how scores are calculated. We’ve actually seen scores go up after a person files bankruptcy. This seems weird, but it does make a little sense: suddenly all or most of the debt is erased, making you more credit-worthy. Your debt-to-income ratio is substantially changed: same income, no debt. Most people tell us (and we’ve verified this as true) that their credit score is significantly higher two years after the bankruptcy than it was before they filed bankruptcy. Bankruptcy can truly be a fresh financial start.

What about my spouse’s or co-signer’s credit?

If your spouse is not filing bankruptcy with you, your spouse (or anyone else for that matter) who is obligated on a debt with you will still owe the debt. Also, a credit reporting company is allowed to reduce a person’s credit score because a codebtor (you) filed bankruptcy on a debt that both of you owed. This may seem unfair (and we would agree), and there is a possibilty that this will change in the near future. We’ll keep you posted on what happens.

What is the process of filing bankruptcy?

Generally speaking, for a Chapter 7, once the paperwork is filed, you must attend a meeting. The meeting occurs about a month after you file. There is no judge at the meeting. A person called a trustee will ask you questions at the meeting, such as whether your forms are accurate or whether you have any assets that aren’t listed. Your creditors are allowed to attend and ask questions, but they almost never do. The meeting usually lasts about five minutes There is rarely a problem in bankruptcy cases, so you will probably never have to go to court. About two months after the meeting, you will receive a dischage from the judge, which essentially erases your debt. Chapter 13 cases are a bit more complex, because Chapter 13 involves a payment plan and not just a discharge, but the process is essentially the same.

What about consumer credit counseling?

Consumer credit counseling is a viable option for those who wish to avoid bankruptcy. The usual process is that a consumer credit counseling agency will attempt to reduce the amounts you owe by negotiating with your creditors and set up a payment plan for you. Beware, though. If you go ahead with the payment plan, every creditor you owe will be able to report the plan on your credit, resulting in numerous reductions in your credit score. Further, these marks may remain on your credit for seven after you’ve made your last payment under the plan. In other words, your credit may get even worse, the plan may stay on your credit for longer than a bankruptcy filing would, and you still may owe all or most of the money. This option is rarely advisable over bankruptcy, which erases your debt and may actually improve your credit. (By the way, we’re not trying to talk anyone into filing bankruptcy over going to consumer credit counseling. We think everyone should consider all their options. When people come into our offices, we advise them not to file bankruptcy as often as we advise them to file bankruptcy, but we just think you should be completely aware of all the consequences your actions may have. It might interest you to know that most consumer credit counseling agencies–especially the ones claiming to be nonprofit–are owned by credit card companies and banks. Hmmm.)

I filed bankruptcy before. Can I file again?

There is no limit on the number of times you can file bankruptcy, but this will change on October 17, 2005. You must wait eight years after you’ve received a discharge on your last Chapter 7 bankruptcy to file Chapter 7 again. These time limits do not apply to Chapter 13, however, and you may be able to file Chapter 13 even if eight years have not passed, though there are some exceptions.

Will I be able to keep certain credit cards if I file Chapter 7?

Maybe, if the credit card company agrees. Of course, you’ll have to continue making the payments. This rule applies to any creditor. For instance, you may want to keep your signature loan at a local credit union, or you may want to pay a doctor’s bill to keep your doctor happy.

Is it a sin to file bankruptcy?

We’re lawyers, not clergymen, but here’s our opinion, for what it’s worth. We know of no Biblical scholar who believes that the filing of bankruptcy is a sin. A few scholars believe, though, that not paying your bills is sinful. We find no Biblical authority to support this position. In fact, the concept of bankruptcy originates in the Bible. Dueteronomy suggests that every seven years, all debts were discharged. We don’t know exactly what that means, and the Bible provides no clear explanation, but it certainly seems to support the position that the filing of bankruptcy is not a sin.